Geopolitical flashpoints and trade tensions caused a heightened sense of volatility in US equities. Markets are still making sense of many variables including trade, AI domination, Israel-Iran conflict, and the President’s “Big Beautiful Bill”. Although the volatility caused a significant drawdown, risk sentiment was strong enough to produce a strong rally subsequently.
Australian economy remains resilient as the RBA voted to pause in its latest Monetary Policy meeting. The unemployment rate remains historically low, and the AUD has strengthened in recent times, reflecting the confidence in Australian GDP forecasts, labour markets and government fiscal support.
Given the rich valuations of US mega cap equities, our portfolios favour assets more resilient in this environment— short-duration equities, hard assets supported by nominal growth, quality small caps, global cyclicals, and S&P 500 Equal-Weighted exposure (mid-caps such as industrials/financials). We remain underweight USD denominated assets, which remain highly sensitive to fiscal volatility.
We still expect a ‘soft landing’: Our main scenario is for the global economy to slow down but not fall into recession. We’re keeping investments diversified, with a tilt toward areas that look better value and can handle volatility.
Focusing on value and balance: We’re investing more in the UK, and emerging markets, plus smaller quality companies. We’re keeping less in the expensive US tech giants, staying cautious on Australian banks, and avoiding property sectors that are too sensitive to interest rates.
